Equilibrium Elasticity Is One of Essay

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Movie theaters should solve their problem by allowing for market pricing on seats at different showings. I would borrow a system that is in place at some discount airlines. This is a good business to take cues from because, like the movie theater business, they have regularly scheduled but perishable supply. The prices for each seat would depend on how many seats for the showing remained. The first, say, ten seats in the theater would be the lowest-priced, and then the prices can increase as the number of remaining seats decreased. The theater would therefore encourage people to forgo a popular showing for a less-popular one because of the money saved

The downside to this approach is that it does not explicitly solve the problem of having capacity overages. If there is excess supply, then the theater is simply shuffling the same number of customers around between different showings.

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The theater would most likely make more money with my system (though not necessarily so) but the theater would need to make the cheaper seats quite cheap in order to bring in more customers if it truly wants to profit from this system. Also, the theater might face higher costs with my system. If the theater hires fewer ushers, ticket-takers and concession staff during slower times, operating costs could increase under my system. More people would show up at slow times, necessitating more staff at those times, while the busy times might still be sufficiently busy to require full staffing. Thus, while my solution might increase income and redistribute some revenue to different showings, it does not solve bigger demand problems and might cause higher costs that offset the revenue gains from the strategy.

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